How Guilds can Reduce the Growing Student Loan Debt Bubble

Student loans now total over $1 trillion, and $105 billion of those loans are currently in default. John Carter, an author over at Generation Opportunity, is rather concerned about the debt problem. And so are we. So what is the solution?

Guilds! I bet you didn’t see that answer coming, right? Interestingly, Carter suggested two different ways to reduce the student loan problem, and both of those can be implemented through guilds. The first option mentioned is cheaper alternative education paths, this would have another positive effect through increased competition. The second option, discussed by Carter, is a form of student loan where the person is only responsible for paying back the loan, so long as he or she has a job. In addition, rather than traditional loan repayment, the borrower pays a percentage of his or her income, for an agreed upon time.

Alternative Education

Clearly guilds are a perfect way to tackle option one. A major component of guilds has historically been to provide trade education. In fact, universities were once essentially guilds of researchers. Because much of the training is “on the job training” and because senior guild members often are expected to provide some help educating the next generation, the cost to the guild is much lower than traditional options.

As a side effect, guilds would help reduce elevate the student debt bubble in a way not mentioned by Carter. Because guilds would be, at least to an extent, in competition with traditional educators, the traditional educators would have to lower their prices as their customer base declines. Right now, a lack of substitutes for college degrees is keeping demand relatively inelastic. The return of guilds would increase elasticity of demand and force down the price of a college degree.

Alternative Loan System

But what about the second option that Carter mentioned? It’s an interesting idea. However, forgiving what is essentially a loan, if the person cannot find a job, is very risky. That higher risk would generally be added to the cost of obtaining such a loan, either through more stringent requirements, including credit, or through higher interest rates. By itself, option 2 may result in either more student debt or more difficulty in obtaining funding for education. However, because guilds exist to provide support for its members, rather than to make a profit, their costs would be lower from the beginning. The guild can also help the graduate find work in order to pay back his lender.

Summary

So, guilds can offer an alternative to the current loan system and can implement it, even though such a system may incur an increase in risk and they can provide competition through alternative education pathways, which besides giving a lower cost option itself, would drive down the price of college degrees. In other words, guilds offer a powerful way to reduce the growing student debt problem.

Update: Mike Rowe vs Bernie Sanders

12/16/2015

It seems that there are in general two camps: those who think College is everything, and those who realize that it’s not. Bernie Sanders recently made the following comment “At the end of the day, providing a path to go to college is a helluva lot cheaper than putting people on a path to jail.” Well, Mike Rowe, a person who doesn’t mind getting his hands dirty, wasn’t all that pleased. It suggests that the most likely alternative to a college path is going to prison. You can read his full response on his Facebook page. Now, to his credit, Sanders wants to make college education “free.” So he’s probably not thinking about the debt problem too much, but even then, it’s a concerning view. College does not always provide an education, and even if it does, it’s only one type.